Published On: Mon, Oct 28th, 2019

Pension gap: Government urged to pay into pensions for mothers and carers | Personal Finance | Finance

The Social Market Foundation (SMF) said that without significant new support for women’s pensions, increasing lifespans will widen economic gaps between the sexes. According to the think-tank, it could see women’s wealth falling further behind men. The SMF made the warning ahead of publishing its report “Gender equality and the 100-year life”, which is supported by the AIG.

The think-tank’s research found that five years after graduation, men’s median wages are £3,600 higher than female graduates, and after 10 years, this rise to £8,400.

The SMF warned: “As people retire later, the length of time in work will increase and wage disparities may continue to increase. This has the potential to deepen the divide between the financial position of men and women during and after their working lives.

“Taking time out of the labour market to raise children or care for relatives is one of the key causes of the pension gap.

“Addressing the lack of pension accumulation during this period is essential if we are to close – or even narrow – the gap in pension savings between men and women.”


How does SMF suggest reducing the gender pensions gap?

The SMF suggested the Government considered paying into the pension pots of women who take time out of work to care.

In 2016, the Office for National Statistics (ONS) estimated that a woman on maternity leave carries out weekly unpaid work with an economic value of £762.75 – a figure which is well above the average regular weekly wage.

The think-tank said that applying the current three percent minimum contribution rates from automatic enrolment pension schemes to this value would mean the Government contributed £22.88 per week, or £1189.89 per year.

Kathryn Petrie, SMF Chief Economist said: “Rising lifespans are a good thing, but if we don’t have the right policies to respond, they could amplify financial differences between men and women.

“We should celebrate the 100-year-life but also accept that it has the potential to deepen the divide between the financial position of men and women during, and after, their working lives.

“To prevent the pension gap widening further, the government should consider contributing directly to the pension pots of individuals who take time out of the labour market to have children or to care for family members.

“For all the strides we’ve made towards equality, social attitudes that push women to give up work to care for children and parents remain strong.

“As well as trying to give women and men more flexibility and choices, government policies should do more to help women with the financial implications of taking time out of work.”

Ian Browne, pensions expert at Quilter, commented: “Start early when it comes to saving – it’s an adage spouted by many and its importance shouldn’t be underestimated. But for some it is even more important, including women and anyone who may take a career break. Women, in particular, generally have two additional elements that make it of vital importance that they benefit from the magic compounding interest – often they take time out to take care of loved ones and they live longer.

“The proposal from the Social Market Foundation has merit as carers are the unsung cogs that keep the wheel of society moving. However, they do so at a cost to their own wellbeing including their financial wellbeing which has long term lasting impacts and could prohibit their own ability to have a secure retirement.

“A career break can have a substantial impact on your pension pot. For instance if you are auto-enrolled on a salary of £45,000 from when you are 22, with a retirement age of 55 and you take a 2 year career break at 35 you will end up with 6% less in retirement than if you hadn’t taken a break.

“However, with pensions already costing the government somewhat incomprehensible sums of money it is unlikely they can deliver this proposal across the board. However, there is scope to make the provisions for those providing care of an elderly relative fairer, an area where previous governments have fallen well short in.

“For example, if you formally register as a carer for someone you can get some benefits and NI credits toward the state pension but it is nowhere near satisfactory.

“When we eventually get some form of social care policy from the government, it needs to address this issue head on.

“The current system in some ways levies a ‘dementia tax’ on those who are caring for someone with the debilitating condition, and can have an enormous impact on their ability to earn and thus their ability to save for their own later life.

“A good financial planner can help you work out the best way to mitigate the impact of caring duties. For instance it may be both tax efficient and responsible for the working partner to fund their partner’s pension.”

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